NSC vs. CP: Which Stock Should Value Investors Buy Now?
The Waste Management industry mainly deals with all the activities and actions required to manage waste from its inception to its final disposal. It’s a multi-billion dollar industry and major services include waste collection, waste treatment and disposal, and remediation.
The industry is highly dependent on industrial, commercial and construction business activities. Growth in these sectors results in higher waste production, thereby increasing demand for industry services. The waste management industry is thus firmly tied to the health of the broader economy, which is currently quite favorable.
A rise in GDP, an improving employment scenario, easing of the U.S. dollar and momentum in oil prices are all signs of improvement of the U.S. economy. Meanwhile, manufacturing and non-manufacturing activities are currently benefiting from all-round strength in the economy. The Trump administration’s business-friendly policies, including tax cuts and the repeal of regulations, are additional tailwinds.Furthermore, increasing demand for renewable energy and solid waste recycling has opened up revenue generation opportunities for this industry.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two Waste Removal Services stock — Waste Management, Inc. WM and Stericycle, Inc. SRCL. Both the stocks are part of the broader Business Services sector(one of the 16 Zacks sectors).
While Waste Management has a market capitalization of $35.72 billion, Stericycle’s market cap is $5.41 billion. Currently, both the stocks carry a Zacks Rank #3 (Hold) and have a VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Since both the companies carry the same Zacks Rank & Style Score, we have tried to assess them on the basis of certain other parameters.
Waste Management clearly scores over Stericycle in terms of price performance. Waste Management has gained 15.4% in a year’s time, outperforming the S&P 500’s and industry’s rally of 12.8% and 7.6%, respectively. Stericycle has declined 23.2%, underperforming both the S&P 500 and the industry.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Waste Management’s current-quarter earnings are projected to grow 25.9% while that of Stericycle are expected to decline 1.7%. Looking at the full-year 2018 picture, Waste Management’s earnings are projected to grow 24.8% while that of Stericycle are expected to increase 6.7%.
For 2019, Waste Management’s earnings are expected to register 8.9% growth compared with 3.4% for Stericycle. Moreover, the long-term expected earnings per share growth rate of 12.1% for Waste Management is higher than Stericycle’s growth rate of 9.6%.
Thus, Waste Management has an edge over Stericyle in terms of quarterly and yearly projected earnings growth.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. Based on full-year earnings estimate revisions in the last 30 days, Stericycle is better placed. The Zacks Consensus Estimate for 2018 earnings increased 1.1% for Stericycle against a decrease of 0.5% for Waste Management.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
Waste Management has performed better than Stericycle, having surpassed the Zacks Consensus Estimate in three of the previous four quarters, resulting in an average beat of 3.6%. Stericycle has delivered positive surprises in two of the prior four quarters with an average beat of 0.8%.
We have tried to evaluate Waste Management and Stericycle in terms of price to earnings Ratio (P/E). This metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is usually considered better than a higher one.
The trailing 12-month price-to-earnings multiple for Waste Management and Stericycle is 23.9 and 14.2, respectively, while that of the industry is 26.1. Stericycle has an edge with a lower P/E ratio and is undervalued relative to the industry.
ROE and ROC
Return on Equity (ROE) is the measure of a company’s efficiency in utilizing shareholders’ funds. Waste Management’s ROE for the trailing 12-months looks impressive in comparison to Stericycle. The current ROE for Waste Management is 26.7% while that of Stericycle is 14.1% compared with the industry’s ROE of 16.4%.
The picture is same in terms of Return on Capital (ROC) where Waste Management scores over Stericycle. Waste Management‘s ROC is 10.6% compared with 7.8% for the industry. This implies that the company generates a higher return on investment than its industry. Stericycle’s ROC stands at 7.3%.
Our comparative analysis shows that Waste Management scores over Stericycle in terms of price performance, expected earnings growth, earnings history, return on capital and equity. Stericycle enjoys an advantage in terms of earnings estimate revisions and valuation.
Stocks to Consider
Some better-ranked stocks in the broader Business Services sector include Waste Connections WCN, Accenture pls ACN and NV5 Global NVEE. All the stocks carry a Zacks Rank #2 (Buy).
The long-term expected earnings per share growth rates for Waste Connections, Accenture and NV5 Global are 13.3%, 10% and 20%, respectively.
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Accenture PLC (ACN) : Free Stock Analysis Report
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Waste Management, Inc. (WM) : Free Stock Analysis Report
Stericycle, Inc. (SRCL) : Free Stock Analysis Report
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